So we have the first stage of the global
Code of Conduct in the public domain but as I witnessed on Thursday in New
York, there is still a dangerous degree of complacency in the industry – and
that represents a challenge for those creating and implementing the Code.
We will have to go a long way to match the
tremendous Last Look debate during the afternoon session at Forex Network New
York – one that several seasoned observers thought one of the best conference
sessions they had seen (probably because I wasn’t involved!) – but the day was
full of interesting debate, not least the liquidity session in the morning.
What bothered me, however, was what
followed that session.
We were going straight into a session with
Guy Debelle, head of the FX Working Group that designed the Code, and David
Puth, chair of the Market Participants Group that assisted in the work.
Remarkably, about 30 people got up and left
the room. To me this highlighted the challenge facing the FXWG – reaching everyone in the industry.
I grabbed someone later for a quick word
who had left the room and the answer was simple – “The Code doesn’t apply to me
– I’m in technology not markets.”
I also spoke with another “leaver”, who
worked for a “institutional” brokerage business that had grown out of the
retail segment – which of course means the firm couldn’t monetise the business
given the cost of compliance in US retail FX markets so it rebranded itself as
“institutional” – and this person, also thought it didn’t apply to him as an
During our interview we spent more time on
adherence and governance – two elements to be completed during stage two – than
planned, not only because I have always thought it the crucial element to
success, but also to highlight to those sensible people that stayed that the
code applies to everyone.
I suspect part of the complacency witnessed
is also that people are waiting for people to tell them what to do under the
Code. This is all well and good, but I have a message for people that think
that – this “Pavlov’s Dog” approach to compliance doesn’t wash in today’s
world. More pertinently, a big part of management going forward will be
adherence to what will be the single
Code of Conduct adopted by market participants.
Not only does this lazy approach highlight
someone’s lack of suitability for a management position, thereby ruling out
promotion and limiting pay increases – it will also, going forward and if they
are already senior, raise questions about their suitability for continued
In a nutshell what I am saying is the mood
in the industry has changed dramatically – yes it is important to be successful
but more importantly at this moment in time (and to a degree I find it sad we
have got to this stage) you must be seen to be doing the right thing. The
question is simple: How can you prove you are doing the right thing if you
choose to ignore the document that underpins that whole process?
We all know compliance is boring (sorry
those of you that like or work in it – face facts!) but it is more important
than ever. For years people did the right thing and if they didn’t they were
weeded out by management or peer action. Technology, to a degree, changed that,
because management and peers found it harder to know what their colleagues were
talking about and, of course, technology helped predatory traders thrive for a
period of time leading to defence mechanisms that ultimately stepped over the
So the challenge for the FXWG is to reach
those people that historically have not interacted too much with regulators and
market bodies – I am fairly confident
that future misconduct will not take place in banks, the trauma levels are
still way too high – but just as much as that work needs doing the industry has
to taken several steps towards the Code.
The message is gradually being driven home
that, if the industry doesn’t adhere to the Code, the alternative is what is
euphemistically called “a non-market-based solution”. This is enforced
regulation by people who may not fully understand the industry and would
probably lead to severe restrictions on activity.
Few want this I am sure, but it does
concern me that there is a small cultural subset in the industry who develop
rules-based solutions – and they are quite happy to have a regulatory framework
imposed. The real task then for the industry is to ensure that FX continues to
be an innovative, vibrant industry that does what it has always done – look
after the end user in the real economy.
It’s not a difficult task – all it involves
is reading and understanding a document and doing the right thing.